[caption id="attachment_135" align="alignleft" width="128"] Paul Heritage-Redpath, Product Manager
In yesterday’s Autumn Statement the government announced measures that will, in their words, “bring faster and more reliable broadband for homes and businesses across the UK, boost the next generation of mobile connectivity and keep the UK in the forefront of the development of the Internet of Things.” A sweeping glance at the headline text suggests that the investment of £400m into a Digital Infrastructure Investment Fund (DIIF) and tax-relief on full fibre infrastructure are a great step forward for the development of Gigabit Britain, but as usual, the devil is in the detail. And it's the consideration of the detail that has brought us to the opinion that Chancellor Philip Hammond has achieved nothing more than political manoeuvring aimed at satisfying the calls for more investment in the UK’s fibre communications infrastructure.
More questions than answers
The lack of clarity and detail within the Autumn Statement gives rise to many more questions than it answers including ‘Exactly how can these goals be achieved with just £400 million of taxpayers money?’, ‘Who is the DIIF fund aimed at?’ and ‘Is five years of tax relief on fibre infrastructure actually as good as it sounds’?
Granted, some premises may get faster and/or more reliable broadband as a result of the £400m DIIF investment. But not many. An estimate made on www.thinkbroadband.com suggests premises passed could be many as two million, or as few as 500,000. We’re not sure that it can be expected to have even this degree of impact. In terms of fibre infrastructure investment, £100 million a year is not that much – and with the spending spread over four years, progress won’t be rapid.
In terms of intended recipients of fund monies, there are hints that targets are principally AltNet companies such as Hyperoptic, Gigaclear and B4RN. But there is no specific reference that this is the case, which suggests that the fund is available to any company that is willing to match government funding with its own investment. With BT Openreach the only infrastructure provider showing willing when it comes to the Universal Service Obligation (USO), largely because of the costs involved, we wonder if they will ultimately become the sole recipient of any DIIF funds.
The last time match funding was tried, in the Connection Voucher scheme, there was much scrabbling at the end for businesses which had invested in circuits in good faith but who, through no fault of their own, were left without funding because Openreach could not deliver before the scheme closed. Let’s hope lessons have been learnt.
It’s also possible that the government is using this opportunity to send a message to BT, which has said it will hold off on making any further investment commitments until a favourable outcome regarding Ofcom’s Strategic Review on the future of Openreach is achieved. The government has made it clear that it is unhappy with the level of funding BT is putting into fibre infrastructure. If the incumbent infrastructure supplier wishes to take advantage of these funds, they’ll be under pressure to commit to future rollouts, before other suppliers suck up all the cash. Ofcom is due to make a final decision on BT/Openreach next month so the timing is certainly interesting.
When tax relief is not enough
The suggestion of ‘a new 100% business rates relief for new full-fibre infrastructure for a five-year period from 1 April 2017’ is clearly designed to entice infrastructure builders to roll out fibre connectivity to more homes and businesses, boosting speedier coverage across the country. This doesn’t help the Alt-Nets who have already invested in their own dark fibre, and as it takes much longer than five years to realise a pay-back on fibre infrastructure, the ultimate recipient of a long-term revenue stream will be the Treasury in seeing more of the controversial tax on fibre once the five years are up.
We were surprised to see the claim that the development of the Internet of Things (IoT) will also benefit from an improved fibre infrastructure and are of the opinion that, with these three words, the Government has demonstrated their complete lack of understanding of our sector. To us it looks as if the Chancellor’s communications office has played a great game of buzzword bingo. Right now most IoT devices require very little bandwidth, and this is likely to be the case for many years to come.
In another linguistic faux pas, the statement says that the fund will help “local areas to support investment in a much bigger fibre ‘spine’ across the UK, prioritising full-fibre connections for businesses and bringing together public sector demand.” Frankly, we have no idea what this is supposed to mean. A ‘spine’ is by nature the central backbone of a thing and of which there is only one. To this end, you can’t have a local spine - this would be akin to saying that a femur is the spine of the leg. Perhaps the PR chaps at the treasury are alluding to the need for a higher capacity fibre backbone and if they are, they’re missing the point. It’s not the lack of backbone that’s the problem but rather getting people access onto the network.
Once again, timing here could’ve been better on the government’s part. The existing single-supplier N3 national “spine” network for public sector health providers is being competitively re-tendered this week as the “Health and Social Care Network” (HSCN) which is “different because it brings a flexible choice of suppliers and service models”.
The use of the term ‘local’ rather than ‘rural’ is also interesting because it suggests that the government wants to encourage the AltNets to come forward with investment commitments rather than the big players. While many of these do serve rural areas, others are focused on specific urban areas – and indeed, have already welcomed the funding. There are still major problems in bridging the ‘digital divide’ between urban and rural areas and there is no direct indication or assurance in the Chancellor’s statement that the investment will be targeted at remote areas of the country that are currently poorly-served by broadband coverage. And while the government has caveated their statement with “a call for evidence on delivery approaches will be published shortly” it seems probable that the DIIF will be used to fund further investment in urban areas. As expected, the response from the rural community has been less than enthusiastic.
While we welcome any extra funding for fibre build-outs that may be made available, the Autumn Statement lacks clarity and detail on exactly how this £400 million fund will achieve its goals. There may be some very specific reasons for the wording the government has chosen, but if so, they are not at all clear. There is reason to believe that these commitments to improving the UK’s fibre capability were included in the Autumn Statement to show that the government is doing something to drive investment and that it has its finger on the pulse of industry developments. Frankly, we’re not at all sure it does.
Overall the Autumn Statement was something of a damp squib. The measures suggested don’t go far enough, lack depth and detail and will, in our view, have little impact on long-term investment in fibre infrastructure. In the end, it looks rather too much like political manoeuvring and posturing, when what’s needed is decisive and effective support. Currently, only 2 percent of UK premises have access to full-fibre connections compared to an EU average of about 20 percent. This is not going to change anything fast.
What would we like to see? Much more realistic and definitive support for the AltNets would be no bad thing and a complete suspension of rates on fibre investment would certainly help to encourage investment. It needs to be easier and less expensive for companies to invest in long-term communications infrastructure projects. Without that, the UK has little hope of becoming the digital leader it aspires to be in the 2020s.
Have your say!
What do you think about the measures announced by the Chancellor? Do they go far enough or are they merely a drop in the ocean? Whatever your views, we’d love to hear them so leave us a comment below.